Is the Temple & Webster Group Ltd (ASX: TPW) share price a buy?
Many investors may be asking themselves that question after its fall of around 30% since 20 October 2020. Despite that decline, it’s actually up 277% in the year to date.
But what has been driving these movements?
Temple & Webster share price was at $4.18 before the onset of the COVID-19 crash on the share market. It fell all the way to $1.57 on 23 March 2020. The share market started recovering as government stimulus and central bank support started.
E-commerce businesses saw elevated demand during the period of lockdown restrictions. At the end of April 2020 it said that second half revenue was up 74% year on year to date.
That growth continued throughout the rest of FY20. In the final FY20 result, Temple & Webster reported that second half revenue was up 96% and the fourth quarter revenue was up 130%. Overall, full year revenue grew 74% to $176.3 million.
The company said that it played its part in helping Australians set up their homes to deal with the impacts of the crisis. Management believes that many people who may not have shopped for their homes online before are experiencing the benefits of the channel, including convenience and value.
Management pointed out how the advantages of being the online market leader are apparent as it continues to grow its market share. It said that the strategy of being a category specialist, with a clear customer offering built around the biggest and best furniture and homewares in the country, combined with the most inspirational content and services and a great delivery experience and customer service, is working.
In FY20 it grew active customers by 77% year on year, it was cashflow positive and it generated $8.5 million of earnings before interest, tax, depreciation and amortisation (EBITDA) (up from $1.5 million).
The CEO was particularly pleased by the high level of customer satisfaction.
And the decline…
The Temple & Webster share price has been falling ever since it gave a trading update at its annual general meeting (AGM) over a month ago October.
In that update it said that year to date revenue for 1 July 2020 to 19 October 2020 was up 138% compared to the prior corresponding period.
It generated $8.6 million of EBITDA in the first quarter of FY21, which was more than the full year of EBITDA in FY20.
Temple & Webster said that October revenue growth was still in excess of 100%. The company was pleased with that given it has entered its peak trading months. The contribution margin was also ahead of its 15% target. Customer satisfaction levels remain at a record, with a net promoter score of around 70% and newer cohorts of customers continue to perform better than historical companions.
Is the Temple & Webster share price a buy?
The company plans to continue to expand its range, particularly private label products. It’s going to keep aiming to grow its market share and brand awareness. It will keep investing in training and platforms for its customer experience and add more delivery options.
Temple & Webster said it’s committed to a high growth strategy to take advantage of the structural shift towards online, capitalising on both organic opportunities as well as potential acquisitions.
According to Commsec, Temple & Webster is valued at 34x FY22’s estimated earnings.
The Motley Fool Share Advisor service currently rates Temple & Webster shares as a buy.
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Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Temple & Webster Group Ltd. The Motley Fool Australia has recommended Temple & Webster Group Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.